JM Financial Services has initiated coverage on Tata Capital from the very first day of the stock’s trading. The brokerage has an ‘Add’ rating, with a target price of Rs 360, implying an upside of 10% from the current market price.
Here are four factors powering JM Financial’s investment decision and why they initiated coverage on the newly listed financial arm of the Tata Group-
JM Financial on Tata Capital: Highest credit rating
Tata Capital benefits significantly from its strong parentage of the Tata group, which is recognised as one of India’s most respected business conglomerates with a legacy spanning over 150 years. This Group backing provides the company a high credibility and easy access to capital.
Plus, Tata Capital enjoys the highest possible credit rating of AAA/Stable from multiple rating agencies, which include Crisil, ICRA, CARE, and India Ratings. This enables Tata Capital to have low-cost funding (CoFs).
JM Financial on Tata Capital: Highly diversified portfolio
The company is positioned as the third-largest diversified NBFC in India with an Assets Under Management (AUM) of Rs 23,340 crore as of Q1 FY26. JM Financial highlighted the company as the most comprehensive among large diversified NBFCs based on its number of loan product offerings. Tata Capital offers 25+ different lending products catering to individuals, SMEs, and corporates. The company’s almost 80% of loan book is focused on secured segments.
JM Financial on Tata Capital: Strong AUM growth
The NBFC has witnessed strong AUM growth in the past, reporting an AUM CAGR of around 31% from FY22 to FY24. The entity maintained a posted AUM growth of 28% CAGR over FY22-25. Despite the near-term impact of the Tata Motors Financial (TMFL) merger, JM Financial expects a continued AUM CAGR of 20% over FY25-27, supported by an expected 18% growth in disbursements.
JM Financial on Tata Capital: TMFL merger and distribution expansion
Merging Tata Motors Finance (TMFL) into Tata Capital has provided the company with an immediate operational expansion, adding 353 new branches. This expansion, along with rapid organic branch additions, brings down the pan-India network to 1,516 branches as of Q1 FY26.
This extensive network, along with partnerships and digital platforms (the ‘phygital’ model), is expected to offer robust growth and operating expenditure (opex) advantage, stated JM Financial.
However, after the merger, JM Financial expects to see operating leverage in the future, with the cost-to-income ratio estimated to decline to 39% in FY27 from 42% in FY25. This could be due to the temporarily diluted profitability post TMFL merger. Nonetheless, JM Financial expects a gradual turnaround in the merged book and a consequent improvement in financials going forward.